NZ Drops Interest Rates: Is the RBA Being Too Cautious?

New Zealand’s Reserve Bank has taken a bold step, slashing rates by 50 basis points to 4.25 per cent—its third cut in just four months. Meanwhile, the Reserve Bank of Australia (RBA) holds firm at 4.35 per cent, its highest rate in over a decade. This stark policy divergence highlights contrasting global economic realities and raises a critical question: is the RBA too cautious, prioritizing restraint over relief?

New Zealand’s rationale is straightforward. After two consecutive quarters of negative GDP growth, the country is in a technical recession. Inflation has eased to within the central bank’s target, but weak economic activity demands decisive action. Governor Adrian Orr framed the cuts as essential for closing the "output gap" and jump-starting growth.

How long will the RBA wait before it’s too little, too late?

In contrast, Australia remains hesitant, despite clear signs of household distress under the strain of high interest rates and soaring living costs. Inflation has cooled to 2.1 per cent, partly thanks to government subsidies on electricity and falling fuel costs. However, the RBA’s preferred trimmed mean inflation remains at 3.5 per cent, pointing to persistent underlying pressures. Rising rents, stubbornly high food prices, and stagnant wage growth are squeezing household budgets, particularly for younger mortgage holders.

Adding to the complexity, upcoming Black Friday and Cyber Monday sales are expected to skew spending data. Australians are projected to spend $12.7 billion during these sales, but this isn’t a sign of economic resilience. Instead, it reflects financial strain, as consumers wait for discounts to afford essential purchases. As Greg Jericho from the Australia Institute aptly observes, “If we are not able to sustain spending unless there are sales, then that is a sign the economy is pretty weak and households are struggling”.

By holding back, the RBA risks compounding the pain for Australian households already struggling under the weight of high rates and rising living costs. In stark contrast, New Zealand’s bold approach shows how decisive action can provide relief for households and mortgage holders, and stability for the retail sector in tough times. So, the question remains: how long can the RBA afford to wait before relief becomes too little, too late?

What were the best and worst-performing sectors last week?

The best-performing sectors included Information Technology, up 3.16 per cent, followed by Health Care, up 3.13 per cent and Real Estate, up 2.19 per cent. The worst-performing sectors included Energy, down 3.14 per cent, followed by Financials, down 0.79 per cent and Utilities slightly up 0.03 per cent.

The best performing stocks in the ASX top 100 included Pro Medicus, up 13.59 per cent, followed by Telix Pharmaceuticals, up 9.57 per cent and Lend Lease Group, up 7.67 per cent. The worst-performing stocks included Pilbara Minerals, down 8.43 per cent, followed by Paladin Energy, down 7.32 per cent, and Whitehaven Coal down 4.78 per cent.

What's next for the Australian stock market?

Last week, the All Ordinaries Index maintained its upward momentum, with buyers driving the index up over half a per cent to test the critical 8,700 level. From a technical perspective, the market is currently following a classic uptrend pattern, where robust buying is met with healthy selling. This trajectory suggests the index could climb to the 8,800–8,900 range by year-end. While heavy selling pressure seems unlikely before December concludes, it’s always wise to stay prepared for any shifts.

If the sellers emerge, it’s essential to remain calm, as strong selling confirmation typically unfolds gradually. The key is to let profits run and avoid cutting them short prematurely. Until sellers establish a clear presence, riding healthy pullbacks can enhance returns. Should selling occur next week, look for support around the 8,500 level.

On the sector front, it’s impressive that the index posted a positive return despite two of its strongest sectors— Energy, and Financials—closing in the red. A standout performer was the real estate sector, buoyed by rising expectations of lower interest rates next year. Known for its stability and yield, real estate has attracted significant investor interest. Meanwhile, consumer discretionary stocks enjoyed a holiday boost, with early festive spending benefiting retailers.

For traders, the ongoing sector rotation presents valuable opportunities. Timing your investments strategically is key to maximising growth. For instance, the tech sector currently shows strong potential for short-term gains, while a medium to long-term approach in sectors like Energy and Materials may help you unlock their full upside potential.

For now, good luck and good trading.

Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.